Migrant microfinance for development

Around 1.3 billion people still live in extreme poverty today, according to the United Nations. Poor access to water and education are a daily reality for citizens in developing countries.

Poverty not only creates difficulties from an economic point of view. It can also have negative effects in the societal context: for example, in the case of women in households, it can aggravate their situation and make them more vulnerable to male dependency. Is there a way to break the poverty cycle in developing countries?

Maybe, entrepreneurship can be part of the answer. In 1976, then Economics Professor Muhammad Yunus, realised that deprived people in Bangladesh did not have the means to change their situation. Banks would not give them loans, and they were unlikely to get a job with their poor level of education.

Under these circumstances, he came up with the idea to provide small loans with low interest to a limited group of people. The borrowers shared the responsibility to pay the debt and it was compulsory to invest the money in a business. Surprisingly, this initiative had positive results: most borrowers paid back the loans and established their own small businesses. With this action, he empowered local people through entrepreneurship and helped improve their socio-economic conditions.

Among women in particular, this initiative had a tremendous impact on their lives. Living in deprived areas, women tend to work only at home and become extremely dependent on their husbands. With Yunus’ initiative, the role of women in the family was turned upside down. Being entrepreneurs encouraged them to follow their potential and granted them some economic independence in the household. All in all, the most reliable borrowers in this initiative were women. Nowadays, women still continue to create businesses in developing countries.

Yunus’ work started in Bangladesh and extended through the south east of Asia thanks to the creation of the Grameen Bank, a bank created with the only purpose to provide loans in the form of microcredits. In gratitude for his contribution to economic development, Yunus and the Grameen Bank were awarded with the Nobel Peace Prize in 2006.

Microfinance is now spread worldwide in developed and non-developed countries. This has led to, in the past years, a new way of funding to emerge in developing countries: the migrant microfinance.

Many migrants transfer money to relatives in their home countries. Some institutions from their countries of origin have seen the potential of channelling this money for entrepreneurship projects. By offering secure ways to send money to their relatives, institutions encourage diaspora’s members to engage in entrepreneurial activities in third countries. From financing training programmes to investing in small businesses.

Migrants are capable of fostering investment, boost employment and set a ground for innovation in their home countries. Despite the obstacles of investing in countries affected by wars or with intricate legal frameworks, migrants hold the ability to understand the dynamics in their host and home countries, according to Kathleen Newland and Hiroyuki Tanaka from the Migration Policy Institute. These makes them the perfect candidates to foster entrepreneurship in developing countries.

Taken as a whole, the impact of microfinance has been revolutionary: it has enormously contributed to alleviate poverty. Besides, it has also fostered equality and changed, even in rural areas, family traditional roles. While it is true that poverty cannot be eradicated in the short term, it is important to carry on investing in developing countries.

In this, migrants have a specific role to play: their contribution to the economic development of their home countries creates change. By the encouragement of entrepreneurship under a migrant microfinance system, many business have flourished in the most deprived areas. Entrepreneurship gives hope to those trapped in the poverty cycle.

Governments, NGOs and migrants should learn the lesson, and actively engage with their communities, profiting from the benefits of migrants’ microcredits. The potential of entrepreneurship might have the power to help those who suffer first-hand the consequences of poverty. As the saying goes, “teach a man how to fish, and he will eat for all his life”.